Monday, October 13, 2014

Iraq Follow Saudi, Iranian Price Cuts

As Brent Oil Falls

Iraq will sell Basra Light
crude to Asia at the biggest discount since January 2009. It joined Iran in
following Saudi Arabia’s lead to significantly lower export prices. The scale
of November’s cut could be the start of a price war among Persian Gulf
producers.

Iraq set the Basra Light
at $3.50 below the average of Oman and Dubai prices, the Gulf benchmark.
State-run National Iranian Oil Company has also cut its selling prices to its Asian
customers at the biggest discount in almost six years, matching Saudi Arabia.

Brent crude fell another 2
percent in London today to $88.83 a barrel for November delivery, as demand
slows globally and output expands in the U.S. and Russia.

The American output increased
to 8.8 million barrels a day in the week ended 3 October, the most since 1986.
Russia boosted its output to 10.61 million barrels a day.

11 comments:

US shale oil has a lot to do with this and also the fact that Saudis and rest of the Persian Gulf petro-Sheikdoms have built up substantial "rainy day" fiscal reserves and can handle prices falling to $78 per barrel, but to Iran with a large population and an already sanctioned economy, this is a serious issue and can be socio-economically destabilizing. Another country with high vulnerability is Canada and its high-cost tarsands bitumen based environmentally toxic heavy "oil" that need a $80 plus break even point due to very high extraction costs.

Falling oil prices could pose more problems for Iran than sanctions. Unfortunately, Iran has not built a sovereign fund, unlike the Arab states in the Persian Gulf, and will have no place to go if prices persist between $80-90 for the long haul. BTW, at the current growth rate, the investment return for Saudi sovereign fund might soon equal and even surpass its oil export revenues. This is what Iran did not do, even when it had $100 billion a year in oil revenues.

Ever since the US jumped onto the oil production bandwagon, it became vested in higher oil prices, not lower. Bear in mind that the breakeven price for US shale oil sits anywhere between $60-$80 per barrel (compared to $10-$20 for Saudi oil).

Along with a tanking global economy (just wait and see) being responsible for falling oil prices, I think Saudi Arabia is playing its hand to undermine newcomers to oil production - primarily US shale and, less so, Arctic oil and Russian shale.

Iran won't be so affected because its economy already sucks, and it is used to limitations on oil revenues.

Shale oil production is by entrepreneurs and private companies, as is the case with the U.S. economy. Here the economy is not run by the government. If the oil prices get too low for the amount of investment and production costs required, then we'll see stoppage at many sites, until prices go back up again. This is about economics, not politics.

no, it's not merely about economics, Nader. oil production in the US is firmly ties to the energy policies o the government and if the government decides that increasing domestic production is in the interest of the US and its allies, Congress will vote to subsidize shale production

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